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Modern economy cannot be defined in a better way than through the key hallmarks of continuous expansion of multinational corporations. A sizable amount of business, trade and outputs are accounted for by multinational corporations. According to a research carried out by UNCTAD(1997), the sale of assets from the corporations have grown more than the world GDP, export rates and fixed capital formations. The competitive rates of multinational corporations had incredibly gone up until some problems started to emerge. The US story for instance has changed in the recent past due to economic and social factors (UNCTAD, 1997).
The US for instance has had several predicaments to deal with following failures in multinational corporate like Enron and World com (Burton, 2002). The failure has not been received politely and it has had to endure serious criticisms from external and internal sources. From the normal eye things may seem not as bad but adverse effects cut deeply causing severe effects. Further publicizing of the issue does not make things better as the business press focuses on the governance and board of the failing multinational corporate. It is well acknowledged that corporations have capacity to increase the state wealth tremendously if all the roles and functions fall in place. One advantage that the criticism is that positive changes in the administration of the corporate forcing take place leading to new policies.
The legislation of the multinationals are adjusted to ensure that all corporations work in line with set laws. Though there have been acts set in the past to direct corporate activities one outstanding act as a result of the 2001 aftermath was the Sarbanes Oxley act (Moffit, 2010).
Sarbanes Oxley
The Sarbanes-Oxley Act is one example of legislative change brought about by the criticisms after the decline of Enron. The 2002 act (SOX), has had fundamental governance propositions for some of the companies listed in America asserts Rose (2010). Their involvement in foreign subsidiary matters is looked into by the act. All organizations registered under Securities and Exchange Commission (SEC) irrespective of their localities or trade activities have to adhere to rules and regulations stipulated by the act. May be some slight adjustments may be seen in some states but compliance is inevitable. Alongside the compliance rules are sanctions for directors which work to enhance act regulations. The OECD and Swiss code of corporate governance SCCG are other national and multi national organizations formed to help in the smooth running of the corporate (Rose, 2010).
Multinationals rise
The mid 50’s were can be termed as politically stable years for the US, who had attained economic growth (Burton, 2002). The larger corporations at the time were hoping to invest more with the help of foreign Aid so as to stimulate foreign investment directly. This resulted to expansion of the MNCs leading to almost four times increased manufacturing subsidiaries. After the World War II, US set up factories to further increase their corporate trade. The results were not impressive leading to Kennedy encouraging exports and curtailing all abroad expenditures by the government (Burton, 2002). President Washington too was not for the idea of investing in large world industries. He encouraged private investment instead.
Global economy
According to Burton (2002) the years that followed resulted to a creation of the global economy. By now many states had embraced the multinationals and were involved in trade activities. Growth in competition amongst developing multinationals for instance, increasing the costs and problems such as job reduction started to come up (Burton, 2002). New world economies are not giving the corporations an easy time either.
Role and responsibilities of corporations
Multinational corporations are businesses involved in trade activities in different states (Burton, Erich & Mark, 1994). America is home to top corporate headquarters and has capacity to transform the global perspective of trade. For many years multi corporations have helped in boosting trade and earning foreign exchange through commercial and industrial development. Close international trade brought about by the corporate has tremendously improved international relations. Following their impact and massive influence, they are viewed as major aspects economically and politically. The governments, non governmental organizations, and other groups work with multi corporations in the hope to gain future support and finances. Slight hick ups in the multinational companies would mean dire losses and economic recession. Multinational corporations have their main aim as access to market and trade promotion (Moffit, 2010).
Access to new market
To access market the multinationals follow three procedures namely:
- Direct acquisition
- Sequential market entry
- Joint ventures (UNDP, 1997)
Direct acquisition which is also referred to as merger is one of the commonly used strategy to get into new market. It allows large multinationals to take advantage of their capacity through investing in foreign market. One example of the was the 1990 global automotive industries merge which placed the industry at a more competitive scale , introduced new market as well as increased customer response rates (Rose, 2007).
Multinational corporations use sequential market entry to market through establishing niche markets which are linked to mother companies when operating in a new region or country. Sony corporation for instance which is a Japanese multinational used this strategy to get into the US market by first establishing its base in San Diego with a small television. The years that followed had no public signs of progression while Japan was secretly working to create and tactfully spread its magnetic tapes, in 1974 to various cities. This case portrays a growing multinational which used its initial product to access a larger market for the future inventions it created (Burton, Erich & Mark, 1994).
Creating joint ventures is also another way that corporations gain access to markets. This is a method that suggests two companies come together. In most cases one corporation normally has access to the market making it easier to help the upcoming corporate. This system has been prevalent in communist states. Its partners retain autonomy and rule. One disadvantage of this market entry is that one of the partners may turn out to be formidable competitors who will not help the new multinational corporate maximize their potential.
Concerns of multinational corporations
While Multinational corporations have played a great role in the modern economy they are faced with serious flaws in how they run activities. There is need to assess their motives following with regard to factors such as labor, policy and relations which contribute to the overall success of multinationals. Since they work for the well being of the society have they fully served the community?
Labor is a term that refers to availability of manpower so as to perform duties assigned. Without labor the multinational corporations cannot provide goods and services to suit needs. The labor organizations are concerned about multinational corporations in developed countries. The corporations have been noted to move their jobs into developing countries where they can access cheap or free labor (Grant, 2010). Labor organizations based in developing countries also undergo the uncomfortable ordeal trying to negotiate with the corporations over the same issue. Offshore outsourcing is another challenge that developing countries have to deal with as a result of multinational corporate. They use cheap foreign labor and domestic goods then sell them back to developing countries at high rates (Bucheli &Aguilera, 2010, p.351). This is a form of exploitation, which harms the poor states.
The multinationals have had negative effects on the society through poor relations causing their activities to impact less. They exploit the employees, local environment and society. It lacks association with the community who promote its welfare. Socially multinationals are doing badly and are not interactive leaving the community which promotes them feeling exploited.
Policy implies set rules and principles that govern institutions. The corporations have their own policies most of the time. This does not put them above the set government laws. The governments have their hands tied as a result of the growing corporations. They lack any control on the corporate, jurisdictional differences amongst the corporate and states are proving to be tricky too. Non tariff barriers which the government condemns are another issue arising in the corporate world. Multinational corporations manipulate political power through their economic status (Bucheli &Aguilera, 2010, p.351). As a result they have become a point of public influence which highly contributes to political running of states. The freedom they have is excess and can cause harm if not regulated by policies.
Most corporate are independent and carry out their transactions at freewill. Advanced technology has also been another issue that has led to independence of corporate. Multinationals no longer have their headquarters in wealthy nations. Many states own multinational corporate making it impossible to limit the spread of multinationals anywhere.
Corporate management, leadership and responsibility
Corporate leadership and management play a major role in multicultural corporations. Top authority is always blamed when things go wrong. The corporate governance supports the multinationals in funding and gaining access to new markets through international relations. Strategic management is another role played by the corporate governance. This ensures that the right strategy is established and works for the benefit of multinationals (Grant, 2010).
Shareholders and Stakeholders
Corporations have a duty to serve citizens in a way that they are comfortable. Share holder interests get measured through returns of the economy. A stakeholder is a defined as any individual involved in activities of the corporation. They include the employees who work for the success of the corporate, suppliers, customers, the society and community as a whole. For the corporation to work and achieve success with their stakeholders there are set laws and regulations that govern them. Corporations define their rules, customs and practices to enhance business success (Rose, 2007).The economic and long term success of the corporate highly depends on the stakeholders. As a result they are crucial in the decision making and matters affecting the corporation. Rose (2007) asserts that stakeholder interests should be considered and met by the corporation.
Multinational corporations have a future in the digital era. However they have to deal with the concerns that the community is raising and avoid exploiting developing countries that are also in the process of developing multinational corporations.
